Lease Purchase, Money, and Emotional Rollercoaster Kinda Story
You may be wondering what we did with our other house. The one that turns me from an airhead into a crybaby.
Well, we sold it. sortof. sortof not.
It helps to start at the beginning. We didn’t want to sell the home and be upside down in the end. We were very strict about that fact. So let’s just put it all out there…we bought our house for $169,900 in March of 2007. That amount included an allowance for the appliances and a brand new garage door (making the carport into a legitimate garage). The renovations that we did updating the house and yard totaled about $20,000. All we wanted to do was break even with our existing mortgage. Basically, all the renovations would be thrown in as a bonus since we didn’t factor in those costs when we listed our home but we really felt strongly about going into the new home with only one camel on our back. Our listing price was $169,900 (mortgage still due the bank + the fees we would owe real estate agents + closing costs + a tiny cushion for counteroffers = Break even!)
You may be wondering…but Katie you lose that $20K you invested in renvoations and updates! That’s a lot of moolah!…and you would be right. BUT when you think about the alternative (carrying two mortgages as we wait for the market to get it’s act in gear!), that is a loss we are willing to accept.
PLUS. Yeah…there is a plus…
PLUS our real estate agent told us that there would be a fat chance we would get what we wanted for our house. In fact, they wanted to list the selling price closer to $150K. Um. Insert awkward silence with the realtors here. That would mean that we would have taken a $40K hit…if we got the asking price. yowzas. In fact, a house just three doors down from us recently sold for $130! Sure, it didn’t have the basement but it did have similar stats and a nice big fenced in backyard. Basically I looked like this after hearing that:
Yeah. Basically it is because of all the foreclosures. The foreclosed houses MUST be listed as comparables in our area…so even if a house is worth more…it won’t be reflected that way in the sale price because the appraisal will be so low. Insert string of curse words here. So when our real estate agents told us that there would be a better chance to get a higher offer if we did rent it for a while…well…I can’t say that we were thrilled with the idea but at least there was a glimmer of hope that our beloved home would get the price tag closer to what the actual worth is (and Jeremy wouldn’t have to get a second job!). So we put it on the rental market…
But before we get into all that…let me tell you, my underarms were soaked that first day. TMI? I hope so. Both Jeremy and I were nervous about the entire process. We had never been ‘landlords’ before or really managed anything that we didn’t live in personally. So knowing that our first home would be subjected to a strange family (possibly with house-abusing tendencies) was a little scary. What if they burned the place to the ground? What if the kids stuck their entire Lego set down the toilet and it floods the house? What if they got hurt in the yard and sued us for everything including Will? The fears were big. And then came the fear of not getting enough in the rental income to cover the mortgage. Could we afford to pay extra for the old mortgage while still paying for the new house? We had a ton of questions and concerns.
Thankfully we had a real estate agent that was on our side…AND he had a great deal of experience with rental properties. He told us that rentals are nothing to be afraid of…just a little extra work up front and a little bit throughout the rental agreement period. We never have shyed away from work before so we were glad to hear that it didn’t require a PhD to getterdone. He said that the number one thing is to get the right renter. The right renter is a totally personal decision. Only you can determine who is the ”right” person. It’s someone that knows the rental boundaries and respects them. Right away we felt more at ease. Something about hearing the word “boundaries” helped us breathe a little easier.
We actually put it on the rental market and within a week, we had two offers. The first offer was to rent it. The second was a lease/purchase offer. A lease/purchase offer is sortof like two offers. One is to lease it (like a rental agreement) and the other to sell it within a predetermined amount of time. So the first thing that we did was look at the first rental offer. The family actually offered more than what we were asking for each month’s rent…so we noted the down payment and the amount that we were going to pay to our real estate agent to do background checks and credit checks and all the paperwork…and then we calculated the amount that we would pay out at the end of the rental period for repainting, cleaning and repairs. All in all, we would break even and still own the home.
Then we looked at the lease/purchase offer. This family actually offered less on a monthly basis than we were asking for BUT with their purchase offer, they were able to put a down payment of $7K and their offer was only a little less than what we were asking for in the purchase price. The seven grand would act like an insurance policy that they were definitely interested in purchasing. It would go toward the purchase of the home when they got a loan approved and if they didn’t end up purchasing, then we would get it free and clear. Our real estate agent told us that amount meant that they were serious. Some people walk away from $1K to $2K but $7K…um no. So we automatically felt very secure in that they did in fact want to purchase.
Then came the math part. So we calculated all the different scenarios and decided that we preferred the lease/purchase offer (because it meant that in the end, our house would be sold – hey that was the ultimate goal, right?!)…and that we would have to counter offer just to break even. We countered on the monthly amount and the final purchase amount. Then they countered. Then we countered. Finally, it was accepted. In the end, we do have to chip in about $100 a month toward the home’s cost…for landlord’s insurance, our increased taxes, etc…but we can trim the fat off our current budget and do that for 21 months.
Why 21 months? Well, that is the amount of time that the current residents have to secure an approved loan to purchase the house. They have to purchase within 21 months or the $7K deposit will be ours. Oh and in addition, there were repairs that needed to be made. I honestly couldn’t believe that there were any repairs that we HADN’T made already…but after the inspection came back…well, there were a couple little things that needed to be addressed. We agreed to change out the outlet in the first floor bathroom to GFCI:
and the gutters needed to be cleaned and then there was one little spot on the corner of the house that termites had gotten into the wood.
Jeremy had to replace all the boards and since we were currently under a pest control contract, the termite treatment was scheduled and the cavity was inspected to make sure there were no more active infestations. All that to say – don’t let your mulch get close to the wood part of your house….
So after feverishly cleaning and fixing and scheduling…we came to the closing. And this is when I must say…I never expected God to bring us the perfect family for our home. Never ever in a million years. In my head it would be a single guy that smelled bad and had two dogs that he would chain up out back and he wouldn’t appreciate things like butcherblock countertops or a beadboard vanity or a subway tile backsplash. But then on closing day…we met the people that would be caring for our loved home. And I must say…they really are the perfect family for this house. They are exactly what I hoped for…and you know…I don’t mind pitching in that extra $100 a month because I know that they love the home, are excited to live there and are thrilled about owning it one day. Hey – she even was saying that she is thinking about homeschooling her kids…what a small world right? When we chatted, I gave her the lowdown on what plants are finicky and how to care for them, how to work the exhaust hood in the kitchen, and how to change out the curtains in the master bedroom to launder them. Then she told me the thing that really buttered my biscuit…she loved them so much, she went out and bought the exact same counter stools for the kitchen from Ikea.
And that is how our we-lost-money-on-our-first-house story turned into a I-am-so-happy-for-someone-else-that-I-forget-to-be-sad kinda ending.